Coinstar Offers Fee-Free Gift Cards in Exchange for Change

Green Coinstar machines are ubiquitous in grocery and big discount stores around the country; for a nearly 10% fee, they'll sort your change for you and give you bills in return. We'll be the first to admit that rolling coins is tedious work (especially since many banks make you put your name and address on every single roll), but that 9.8% fee that the company charges seems steep for something your kid could do in his or her spare time.

Now comes the news that Coinstar has begun expanding on a little-known program that eliminates that fee as long as the customer is willing to have their pennies converted into retailer gift cards rather than cash.Coinstar still gets its cut; the fee is subsidized by the merchants whose cards are purchased. According to media reports, big retail names like Starbucks, The Gap, iTunes and Amazon are all participating in the program.

Coinstar has done promotions offering people a larger dollar amount when they opted for gift cards in the past; this builds on those deals and expands both the dollar amount and the pool of retail partners. So far, this more comprehensive plan is still running as a pilot program, but company representatives say shoppers like being able to get a gift card.

There are a few things consumers should keep in mind if they choose the gift card option, says Odysseas Papadimitriou, founder of CardHub.com.

"A gift card is the same as cash in that if it's stolen, you have no recourse," he points out. Unlike with a credit card or a debit card -- even many prepaid debit cards -- if the user loses it, that money's as good as gone. Papadimitriou adds that the CARD Act made gift cards more consumer-friendly by mandating sharp limits on fees and a five-year expiration date.

That said, it's important not to fall into the trap of viewing a gift card as "free money."

"Consumers might apply cash to their credit card debt or another necessary expense, whereas consumers will use gift cards to buy extras," Papadimitriou points out. It's the cardholder's responsibility to remember that this is their money and to add it to the household budget accordingly.

Also, keep in mind that Coinstar is getting something valuable out of this program, too: information about the shoppers who use its machines. "Coinstar will probably collect data on what type of demographic uses each machine," Papadimitriou predicts, "and use that information to target offers based on interests of local merchants and the type of customer they're looking for."